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Nokia gets the upper hand in global IPR wrestle with Qualcomm

Battle not over, but...

Comment While we are not saying that the long-running battle between Nokia and Qualcomm is actually over - anything but - there are signs that Nokia’s position is a lot stronger than many observers first thought.

Last week, the International Trade Commission said it would not review its earlier decision that Nokia did not infringe three Qualcomm patents, and now a UK High court has confirmed that many of the patents by which Qualcomm demands royalties for GSM technology are not valid.

Nokia has either sued or counter claimed in the US, UK, Germany, France, Italy, the Netherlands, and China, and so far it has either won or at least not lost any case that has gone to completion. When it initially tried to get German and Dutch courts to say that the Qualcomm GSM patents were exhausted back in Fall 2007, the Courts said its claims were too vague and asked Nokia to either appeal or rephrase the suit. Aside from these, the Nokia cases have been all positive and it points to a very different future between the two companies.

All Nokia wants in life is the ability to use its scale to drive down handset costs, and excessive royalties hamper this. Qualcomm, which has been Nokia’s arch-enemy for too long now, wants royalties ahead of anything but would in the end, we suspect, settle for a deal where the rest of the handset community couldn’t follow the Nokia lead and sue for IPR reductions, and some chip business from Nokia. Neither look set to happen now though.

Qualcomm has been telling US journalists to wait until July when another US court hearing will be heard in Delaware, upon which most of Qualcomm’s hopes rest to turn the tide.

But to some extent the cat is already out of the bag. The UK High Court decision seems to suggest that Qualcomm took older, expired patents, touched them up slightly and re-filed them, to continue its claims.

"The UK High Court and US ITC findings are further evidence of Qualcomm overstating its position as an industry innovator and demanding compensation for patents that are not relevant or valid," a Nokia spokesman said.

Similar patents, asserted against Nokia GSM products, are at issue in separate cases filed by Qualcomm against Nokia in China, Europe, and the United States. Both parties agreed to temporarily stay these lawsuits pending court proceedings in the Delaware Chancery Court. Patent invalidation actions, filed by Nokia against Qualcomm patents, continue in China and Germany.

If Qualcomm does not appeal the UK case, it risks every country in Europe, each with similar patent laws, going the same way, and already the Qualcomm phone lines will be busy with licensees requesting a reduction in their payments if these patents are invalid.

In terms of the entire industry, this may well lead to Nokia getting its way and reducing the IPR load on handsets to a manageable level, which in turn will let Nokia drive down and down the costs of building devices.

For Qualcomm’s part, any reduction in revenues in its IPR will likely be more than offset by its increases in chip sales, as it now dominates the HSDPA chip market, despite holding far less IPR assets there. Our conclusion is that Qualcomm will suffer slightly in that its IPR revenues go straight to the bottom line, but it will continue to gather momentum as a chip builder, and in the end will retain some proportion of its IPR revenues.

US investors have always been too bullish about Qualcomm prospects and this news took only a two per cent to three per cent sheen off Qualcomm’s value - about the same as all telecoms stock fell by last week, Nokia’s included.

In June, Nokia filed US lawsuits against both Qualcomm’s MediaFLO mobile TV technology and its Brew content delivery system, claiming they both use Nokia technologies. We thought at the time that this would be a significant lever in the negotiations between these two companies, but the failure of MediaFLO to make an impact at Verizon has perhaps made this less significant.

Nokia could settle this thing in a moment if it so chose, agreeing a lower level of royalty for IPR and possibly holding out juicy contracts for chip supply to its handsets. But as long as it is on the front foot, it will not go down that route. And unless there is a significant setback in that July action there will be no resolution of this dispute until the tail end of this year at best. By which time even the US market bulls might be selling Qualcomm stock.

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